UK households have positive outlook for first time in five years though weather weighs on South West says Markit

19th February 2014

UK households have reported a positive financial outlook for first time in more than five years according to the latest Markit UK household finance survey.

Among other significant responses households are the least worried about inflation and see less of a squeeze on their savings though the overall figure still remains below the 50 figure which denotes a positive position in absolute terms.

The seasonally adjusted Markit Household Finance Index (HFI) rose to 42.1 in February, from 41.7 in January. This was the highest reading since the survey began in February 2009. Markit says the latest figure – which measures overall perceptions of financial wellbeing – signalled that pressures on household finances have now eased in each of the past three months and are the lowest for just over five years.

A reduced squeeze on household finances reflected slower inflationary pressures in February, alongside a slight rise in income from employment and a stabilisation of household debt levels.

Household spending dipped in February, suggesting that unusually bad weather conditions may have weighed on spending. Although only slight, the rate of decline in household expenditure was the most marked since January 2012.

Expectations for finances in the next 12 months

At 50.7 in February, up from 46.1 in January, the seasonally adjusted index measuring the outlook for financial wellbeing over the next 12 months rose into positive territory for the first time since the survey began in early 2009. By job sector, people working in Finance/Business Services, IT/Telecoms and Construction are the most optimistic about their financial outlook say the researchers.

Job security, workplace activity and incomes

The seasonally adjusted index measuring job security picked up to a new survey-record high of 46.9 in February, from 46.5 during January. Latest data indicated that people working in Manufacturing and Construction are the most upbeat about their job security, while those employed in Retail are the most pessimistic.

February data indicated a solid increase in workplace activity, although the rate of expansion eased for the second month running. This was highlighted by the seasonally adjusted index posting 54.1, from 55.0 in January. There was a particularly sharp drop in the index for households in the South West (48.3 in February, from 55.4 in January), suggesting that extreme weather conditions had weighed further on workplace activity across the region during the latest survey period.

The index measuring household income from employment remained just inside positive territory in February. At 50.8, the latest reading was unchanged from January and above the 50.0 no-change mark for the third month running. Meanwhile, at 46.0 in February, up from 43.7 in the previous month, the seasonally adjusted index measuring household savings rose to its highest level since the survey began in February 2009. Alongside a reduced squeeze on savings, households reported a stabilisation of debt levels (49.9) but a slight reduction in spending (49.3).

Current and future inflation perceptions

Adjusted for seasonal influences, the index measuring current inflation perceptions fell for the third month running in February. Moreover, at 78.0, down from 80.7 in January, the latest reading signalled that households’ current inflation perceptions are the lowest since March 2010.

Meanwhile, households’ inflation expectations for the year ahead were little-changed in February. At 91.3, from 91.0 in January, the seasonally adjusted index measuring expected living costs over the year ahead was close to the series average (90.1).

Tim Moore, senior economist at Markit, says: “The tide has started to turn for UK household finances, as falling inflation and improvements in labour market conditions helped reduce the squeeze on budgets to the lowest for at least five years in February. Adding to hopes that household finances are on the cusp of a rebound, the latest data finally pointed to positive expectations for financial wellbeing over the year ahead and households noted the most subdued outlook for living costs since early 2010.

“However, there were early signs that the recent storms and unusually wet weather have caused a temporary setback for retail sales and business activity across some parts of the UK. In particular, people living in the South West reported a marked dip in their workplace activity during February, while the trend in overall UK household spending was the weakest recorded for just over two years.”